EU leaders agree budget pact worth €960bn over seven years

French president François Hollande and German chancellor Angela Merkel arrive to address the media after concluding an agreement on the budget for 2014-20. photograph: dan kitwood/getty images

European leaders have agreed a €960 billion budget for the next seven years, representing the first reduction in the European Union’s multi-annual budget since the union’s formation.

The new multi-annual financial framework (MFF), which will govern the EU’s income and expenditure between 2014 and 2020, represents about 3 per cent less in real terms than the existing budget, and well below the €1.033 trillion ceiling proposed by the European Commission in July 2011.

In what was seen as a victory for British prime minister David Cameron, more than €30 billion was shaved off the original proposal.

“It is perhaps nobody’s perfect budget, but there’s a lot in it for everybody,” said European Council president Herman van Rompuy following a marathon 24 hours of talks between EU leaders.

Cohesion funding

Spending on transport and energy projects took the bulk of the budget reductions, while €1 billion was cut from the salaries, pensions and administration costs of the EU’s 55,000 employees – a major bugbear for Britain.

Under the new proposal, the Common Agricultural Policy (Cap) and structural and cohesion funding will continue to dominate spending until 2020 though to a lesser extent than before. Some €374 million, or 36 per cent of the overall EU budget, has been allocated to Cap, compared to just over 40 per cent in the current MFF.

Spending on cohesion funds will amount to €373 billion, or 31 per cent of the budget, compared to about 36 per cent at present. The MFF proposal also contains reforms to the way both are calculated, including more “greening” measures in the Cap.

The budget must be endorsed by the European Parliament, a requirement that has come into force since the Lisbon Treaty. As holder of the European Council presidency, Ireland will represent the council in negotiations with the Parliament.

European Commission president José Manuel Barroso said the agreed budget was “below what the commission considers desirable”, though he welcomed the new youth employment initiative.

EU leaders were under pressure to secure a deal at this week’s summit, following failure to reach agreement in November. However, increasing divisions had emerged between member states concerning further cuts in the last few days. France in particular sought further spending while Britain argued for deeper cuts.

While the agreement on research and innovation expenditure was lower than the proposal tabled in November, it is now projected to be just over €70 billion, compared to €50 billion in the current MFF.

‘Vote of confidence’

Commissioner for science and innovation Máire Geoghegan-Quinn said it was “a vote of confidence in support of the research, innovation and science sectors”. On the revenue side, the issue of rebates was a source of disagreement among countries. While the UK rebate was protected, Denmark was given an annual rebate, worth €130 billion. The Netherlands and Sweden will also retain their rebate arrangements.

The agreement also included a compromise on the question of whether budget commitment figure – the maximum amount allotted – or the budget payment figure, the amount of money that can actually be spent, should be used.

The agreement set the commitment figure at €959.8 billion and payments, down €34 billion to €908.4 billion.